[GRAPHIC OMITTED]
===================
Kleinwort
Benson
Australian
Income Fund, Inc.
===================
Quarterly Report
July 31, 1998
<PAGE>
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Kleinwort
Benson
Australian
Income Fund, Inc.
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Report to Shareholders
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Third Quarter Highlights
o Australian dollar ended April at US$0.61 versus US$0.70 at the beginning
of the fiscal year.
o Australian underlying inflation slightly rose +0.7% in the year to June
1998.
o Australian cash rates remain at 5.0% during the quarter.
o The yield on ten-year Australian government bonds was 5.5% in July 1998.
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To Our Shareholders,
During the nine months ended July 31, 1998, the total value of the Fund
depreciated as a result of the decline in the Australian and New Zealand dollars
against the US dollar. The decline in the two currencies will be discussed more
fully below, but it resulted mainly from events in Asia and Japan, and the
associated decline in commodity prices. The bond markets of Australia and New
Zealand performed well over the period, partly as a result of a global decline
in bond yields and also because of the deflationary factors that led to the
decline in the two currencies. Over the fiscal year to date, the Fund's primary
objective of achieving a high level of income return lost ground in capital
terms for the reasons noted above. At July 31 1998, the Fund's closing market
price was $6.88, a discount of 14.1% to its net asset value of $8.00.
For the year ended July 31, 1998, the Fund achieved a total return on net
asset value (with distributions reinvested) of -13.07%. The monthly dividend was
reduced to US$0.045 per share in June 1998. This reduction reflected both the
decline in the Australian dollar and the decline in Australian and New Zealand
bond yield levels that have been taking place over recent years. Accordingly,
the Fund generated a current dividend yield of 7.85% (based on the Fund's stock
price at July 31, 1998 and the income distribution rate of $0.045).
A further analysis of the Fund's performance since inception is provided
on page 3.
- -----------------------
MARKET SUMMARY
- -----------------------
A more comprehensive discussion of the major economic trends in Australia
and New Zealand is provided in the Economic Review, together with an analysis of
recent developments in the debt and currency markets. In summary, the relative
strength of the Australian economy visible at the start of 1998 continued into
the early part of the year. However, as the year progressed, it became apparent
that the financial crisis in Asia, coupled with ongoing weakness in the Japanese
economy, was having a negative effect on Australian confidence and there were
fears of a slowdown late in the period under review. Inflation remained firmly
under control, with no sign that that higher import costs had been passed on to
the consumer. In New Zealand, the economy continued to suffer. The weakness of
export markets was not bolstered by domestic demand, as was the case in
Australia, and interest rates were very high for most of the period. The release
of second quarter growth figures will probably reveal that New Zealand was
officially in recession over the first half of 1998.
The economic background of low inflation and moderate wage growth allowed
the Reserve Bank of Australia to maintain official interest rates at 5%
<PAGE>
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Kleinwort
Benson
Australian
Income Fund, Inc.
- -------------------
throughout the Fund's third quarter. The weakening of the economy was
counterbalanced by the need to maintain interest rate policy in support of the
Australian dollar. The Australian bond market performed well, supported by
positive domestic fundamentals along with global developments. Inflation
remained subdued, and the slowdown in Asia was expected to ensure that there
were few inflationary threats. The weakness of the Australian dollar did not
increase inflation given the inability of retailers to pass on higher import
costs to the consumer. The yield on ten-year Australian bonds fell from 6% in
November 1997 to 5.5% in July 1998. New Zealand interest rates were volatile,
rising sharply from 7.5% to 10% over the first six months of the Fund's year,
before declining rapidly to below 8% over June and July 1998, when an easing in
policy became necessary to stimulate the economy. New Zealand ten-year bond
yields fell from 6.5% to 6% over the period, with prices supported by the
weakness of the domestic economy.
On behalf of the Board of Directors,
/s/ Sir Robert Cotton
Sir Robert Cotton
Chairman
/s/ David M. Felder
David M. Felder
President
September 1, 1998
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PORTFOLIO SUMMARY
At July 31, 1998, the average maturity of the Fund's Portfolio was 4.9 years,
with an average duration of 3.9 years and a current yield to maturity of 5.9%.
Securities rated AAA comprised 76% of the portfolio, with the remaining 24% in
AA rated securities.
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2
<PAGE>
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Kleinwort
Benson
Australian
Income Fund, Inc.
- -------------------
Performance from Inception through July 31, 1998
(Unaudited)
Growth of a Hypothetical $10,000 Investment
[The following information was represented as a line chart
in the printed material].
Australian Index Fund Net Asset Value Fund Market Value U.S. Index
11/86 10000 10000 10000 10000
7/87 11592 11193 10358 9875
7/88 15204 14526 12826 10468
7/89 16478 15447 14206 11249
7/90 17599 16178 14297 12215
7/91 23151 20823 17979 14002
7/92 26661 23536 22130 15473
7/93 29103 25320 23254 17683
7/94 30218 26383 22880 17867
7/95 32064 27673 23491 19024
7/96 39349 33183 28633 20594
7/97 44094 36501 31130 21933
7/98 40455 32460 26735 24953
Since its inception in 1986, the Fund has achieved an average annualized return
on market value of 8.80%, on the basis noted below. On a net asset value basis,
which measures the performance of the Fund's underlying portfolio, the average
return has been 10.62%. Both the market and net asset value performance measures
have outpaced the Salomon Brothers US Government Bond Index which has averaged
8.15%. The Salomon Brothers Australian Government Bond Index has averaged 12.72%
since the Fund's inception, with the difference between the Fund's net asset
value performance and that of the index primarily attributable to the Fund's
operating and foreign tax expenses, which neither index is subject to. After
adjusting for these expenses, which have averaged 2.18% since inception, the
Fund has also outperformed the Australian index.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Annualized 9 10 Since
Performance Months* 1 Year 3 Years 5 Years Years Inception
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fund Market Value(1) -10.97% -16.51% 2.60% 3.11% 7.06% 8.80%
- -----------------------------------------------------------------------------------------------------------------
Fund Net Asset Value(2) -10.22% -13.07% 3.85% 4.75% 7.78% 10.62%
- -----------------------------------------------------------------------------------------------------------------
Salomon Brothers US Gov't Bond Index(3) 6.04% 8.43% 7.86% 6.56% 8.97% 8.15%
- -----------------------------------------------------------------------------------------------------------------
Salomon Brothers Australian Gov't Bond Index(4) -8.76% -10.93% 6.13% 6.43% 9.61% 12.72%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Not Annualized.
+ Fund commenced operations November 28, 1986.
(1) Based on market value per share, adjusted for rights offerings, and
assumes reinvestment of all distributions at reinvestment plan
prices.
(2) Based on net asset value per share, adjusted for rights offerings,
and assumes reinvestment of all distributions at the ex-dividend
date net asset value. This measures the performance of the
underlying Fund portfolio and may not be indicative of returns to
investors.
(3)(4) The Salomon Brothers US and Australian Government Bond Indices
are US$ based unmanaged indices.
Please remember that past performance may not be indicative of future results.
3
<PAGE>
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Kleinwort
Benson
Australian
Income Fund, Inc.
- -------------------
Economic Review
- ----------------------------
ECONOMIC REVIEW
- ----------------------------
The final quarter of 1997 and the first half of 1998 have been dominated
by economic events in Asia, first by sharp currency devaluations and then by
economic stagnation in Japan. The economic collapse in the region dragged
commodity prices lower, subduing inflation across world economies. The US
economy continued to grow strongly, but slowed in the second quarter of 1998 as
lower exports and lower inventories reduced growth. Inflation continued to trend
lower aided by lower import prices and by commodity weakness. European economies
grew solidly, but were moderated by events in the Far East, and inflation was
subdued by stubbornly high unemployment. Global bond markets provided a positive
background for Australian and New Zealand bonds, driven by the deflationary
environment. Short-term official interest rates in major economies were stable
from November 1997 to July 1998.
Australia
Australian GDP figures for the first half of the Fund's fiscal year were
robust with GDP (A) rising 0.7% over the final quarter of 1997, and 1.3% over
the first quarter of 1998, 4.9% higher than a year before. However, the
breakdown of the first quarter figures provided a less positive picture of the
economy. Much of the increase in growth went into stocks and the level of
domestic demand was lower than had been expected. The housing sector continued
to recover, but excluding heavy public sector investment, investment spending
slowed considerably, suggesting lower growth over the second quarter of 1998. As
might be expected there was a drag on growth from net imports and the tourist
related sectors suffered particularly, given the drying up of Asian tourist
inflows. The deflator figures in the National accounts continued to point to low
CPI inflation.
Retail Trade was resilient over the period, but did display some
moderation over the summer of 1998. In November 1997, annual trend increases in
sales were running at a healthy 4.9% compared to 3.6% in June 1998, reflecting
lower consumer confidence on Asian concerns and a stalling in the improvement in
the labor market. The sales figures revealed the expected fall in retail
services for areas dependent on tourist spending, although the most recent
figures show some recovery, with the very weak Australian dollar beginning to
attract visitors again. Consumer confidence rose in late 1997 and early 1998,
reflecting a strong domestic economy, rising house prices and falling
unemployment. However, confidence fell back over the remainder of the period, a
clear result of concerns over the effect of the Asian financial crisis on the
Australian economy.
The Australian labor market improved over the majority of the nine months
under review with the rate of unemployment declining from 8.4% in October 1997
to 7.9% in April 1998. Gains in total employment were split fairly evenly
between full-time and part-time jobs. Employment growth slowed over the summer
of 1998 towards a trend rate of 1.5%, close to the level required to keep the
unemployment rate constant given the trend expansion in the size of the
Australian labor force. The leading indicators of employment also slowed over
the summer, with a decline in both the job advertisement data and a rise in the
number of skilled vacancies. The Australian housing market was a key factor in
the rise in confidence over the early months of the period under review.
Building
4
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Kleinwort
Benson
Australian
Income Fund, Inc.
- -------------------
Economic Review
Approval grew by 16.7% in the year to October 1997, compared to 14.9% in May
1998. The continued strength in housing was a sign that this interest rate
sensitive sector was still boosted by the decline in mortgage rates over the
last two years.
Australian inflation continued to provide a positive influence on the
Australian bond market during the Fund's third quarter. Headline CPI fell 0.2%
in the year to December 1997, and by the same figure in the year to March 1998.
The headline inflation figure rose to +0.7% in the year to June 1998, but this
was simply a reflection of lower base figures from June 1997, and did not
represent strong rise in inflation. The treasury underlying figures, which
exclude the volatile effect of interest rates were fairly stable over the period
rising marginally from 1.4% in the year to December 1997 to 1.6% in the year to
June 1998. The drop in the Australia dollar over the period might have been
expected to boost CPI, but retailers were unable to pass the cost of imports on
to the consumer. The level of commodity prices was also a key factor in the good
inflation performance, with Australian commodities particularly weak.
Wage inflation continued to run well ahead of CPI inflation, but remained
below the 4.5% level that the Reserve Bank of Australia informally sees as
consistent with its inflation targets, given reasonable productivity growth.
Average Weekly Ordinary Time earnings rose by 4.3% in the year to May 1998. Wage
rises were slightly lower in the services sector towards the end of the period,
a reversal of the recent trend, and a result of the increased service and price
competition from Asia. An increasing number of wage agreements are now being
reached through enterprise bargaining rather than the traditional pan-industry
process. Wage rises from this form of bargaining have been lower than the
aggregate wage inflation figures reported above. The average wage rise from
enterprise bargaining was 3.8% in the year to June 1998.
The political situation in Australia witnessed some interesting
developments over the period under review. The Liberal government suffered in
the opinion polls, falling significantly behind the labor opposition. One of the
reasons for this decline was the emergence of the One Nation party, a radical
nationalist group, whose major source of support was from Liberal voters in
rural areas. An election has now been called by Prime Minister Howard and it
remains to be seen whether One Nation will be able to carry their recent
popularity into a general election. Although it is possible that there will be a
change of government, the main thrust of economic policy is expected to survive
intact.
New Zealand
Economic growth in New Zealand was weak over the first nine months of the
Fund's fiscal year. GDP expanded by 0.4% in the December quarter of 1997, and
then fell by 0.9% in the March quarter of 1998. Growth over the year to March
1998 was a subdued 1.4%. Weakness was seen in all sectors with high short-term
interest rates and rising unemployment eroding domestic demand and consumer
confidence. The rate of unemployment rose to 7.1% in March 1998 and again to
7.7% in June, and the anecdotal evidence of employment intention surveys
suggested ongoing weakness in the labor market. Retail sales figures confirmed
the weakness of domestic demand, falling 2% in the year to May 1998. In trend
terms, retail sales have been flat since mid-1996.
The weakness of the domestic economy did
5
<PAGE>
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Kleinwort
Benson
Australian
Income Fund, Inc.
- -------------------
Economic Review
lead to continued low inflation in New Zealand during the Fund's third quarter.
CPIX, the underlying measure followed by the Reserve Bank was stable at 1.7%
over the first half of 1998, with minimal change compared to the second half of
1997. While economic and commodity price weakness were positive, there was some
evidence of an increase in tradable goods prices given the fall in the New
Zealand dollar. It is also clear that despite recent weakness some structural
price pressures remain in the housing sector, particularly in the area of
construction. However, the problem of Auckland house price inflation, a major
Reserve Bank concern in the recent year, does seem to have moderated
substantially.
The external sector of the New Zealand economy was a major focus of the
New Zealand financial markets during the Fund's third quarter. The current
account deficit deteriorated to 7.7% of GDP in the December quarter of 1997. It
was expected that the Asian crisis would make the position even worse over 1998.
The New Zealand current account figures are boosted by the foreign ownership of
major New Zealand firms like Telecom New Zealand. The profits of these companies
are all counted as a current account outflow despite the fact that the majority
of earnings are retained and never leave the country. The current account
situation actually improved over the March quarter of 1998, with the deficit for
the year to March reported at 7.2% of GDP. However, with ongoing problems in
Asia, this level of deficit remains a concern for financial markets.
Debt Markets
The Australian bond market performed well during the period, particularly
over the early summer of 1998. Ten year yields were relatively stable at close
to 6% from late October 1997 to March 1998, but then fell to 5.5% during the
Fund's third quarter, having reached a low of 5.39% in early June. The global
environment was positive for bond markets and it was expected that the Asian
crisis would slow Australia's economy and thus help to keep inflation low. The
Reserve Bank of Australia maintained the level of official short-term interest
rates over the period against a background of low inflation but relatively
buoyant domestic economic growth. During late 1997 and early 1998 there were
expectations of a cut in interest rates given continued low inflation releases
and the level of spare capacity in the Australian labor market. However these
expectations gave way to fears of an increase in rates to defend the rapidly
falling Australian dollar. Despite intervention in the foreign exchange market,
the Reserve Bank of Australia decided not to alter monetary policy.
The New Zealand bond market performed poorly over the last months of 1997
with the yield on ten-year bonds rising from 6.5% to over 7%. Confidence was
undermined by the level of the current account deficit and high short-term
interest rates in response to the currency weakness. However, when it became
clear that the domestic economy was slowing sharply, and short term rates were
reduced, the New Zealand bond market rallied, and ten year yields ended the
period lower, at just over 6%. Short-term rates rose to a peak of 10% in the
spring of 1998, but fell to just below 7% at the end of July, with the Reserve
Bank sanctioning an easing in monetary policy given that the economy was felt to
be in recession.
6
<PAGE>
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Kleinwort
Benson
Australian
Income Fund, Inc.
- -------------------
Economic Review
Australian and New Zealand Dollars
As noted above, the major factor in both the performance of the Fund, and
the Australian financial markets, has been the decline in the value of the
Australian dollar against the US dollar. The currency fell from US$0.726 in
October 1997 to US$0.61 at the end of July 1998, and has made further lows since
the end of the period. The currency has been driven down by various reasons, all
related to the decline in economic fortunes in the Asian region. The decline of
the Asian currencies, in particular the Japanese Yen has led the Australian
dollar lower against a strong US dollar, and indeed in trade weighted terms the
currency fell only slightly. The other significant feature has been the decline
in commodity prices over the recent past, with gold, a key Australian export
commodity, particularly badly affected. In addition to lower demand from Asia,
commodity prices have been in a trend decline for some time, given the
improvements in supply over recent years.
The New Zealand dollar also fell against the US dollar for similar reasons
to its Australian counterpart. The decline in the Australian dollar led the New
Zealand currency weaker and the turmoil in its Asian export market was also a
negative factor. There was concern over the level of the New Zealand current
account, as noted above, and international confidence was shaken by this data.
The New Zealand dollar also suffered from the weakness of the domestic economy,
which led investors to correctly anticipate a significant decline in New Zealand
short-term interest rates. The New Zealand dollar fell from US$0.616 at the end
of October 1997 to US$0.519 at the end of the period under review.
7
<PAGE>
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Kleinwort
Benson
Australian
Income Fund, Inc.
- -------------------
Portfolio of Investments and Cash on Deposit
<TABLE>
<CAPTION>
July 31, 1998
(Unaudited)
Long-Term Investments -- 97.4%
Principal Amount Value (US$)
- ---------------- -----------
<S> <C> <C> <C>
Australian Government and Semi-Government Bonds -- 67.0%
Eurobonds -- 46.2%
A$ 2,000,000 State Bank of South Australia 9.5% due 10/15/02 .................. $ 1,385,896
5,000,000 Australian Industrial Development Corp. 9.25% due 2/17/03 .................. 3,466,510
1,300,000 State Bank of New South Wales 9.25% due 2/18/03 .................. 900,309
3,300,000 Export Finance & Insurance Corp. 9% due 3/26/03 ..................... 2,279,992
16,450,000 Queensland Treasury Corp. 8% due 5/14/03 ..................... 11,044,269
2,750,000 State Bank of South Australia 10.5% due 6/23/03 .................. 2,011,700
1,500,000 South Australian Government Bond 7.25% due 9/22/03 .................. 977,409
2,500,000 Australian Industrial Development Corp. 8.75% due 7/20/04 .................. 1,745,003
22,400,000 Queensland Treasury Corp. 6.5% due 6/14/05 ................... 14,246,827
2,200,000 Treasury Corp. of Victoria 9% due 6/27/05 ..................... 1,575,056
1,000,000 Commonwealth Bank of Australia 9% due 8/15/05 ..................... 712,281
6,000,000 New South Wales Treasury Corp. 6.5% due 5/01/06 ................... 3,841,550
-----------
44,189,802
-----------
Domestic Bonds -- 20.8%
A$10.000,000 Commonwealth Government Bond 12% due 11/15/01 ................... 7,311,450
7,000,000 Western Australia Treasury Corp. 8% due 7/15/03 ..................... 4,710,622
4,000,000 Victorian Public Finance Authority 12.5% due 10/15/03 ................. 3,191,178
6,000,000 Commonwealth Government Bond 10% due 2/15/06 .................... 4,657,092
-----------
19,870,342
-----------
Total Australian Government and Semi-Government Bonds -- (Cost $67,184,759) 64,060,144
-----------
Australian Eurobonds -- 16.5%
A$ 3,500,000 DSL Finance N.V. 10.25% due 4/7/00 .................. 2,291,589
6,000,000 Morgan Guaranty Trust Co. 8% due 4/18/01 ..................... 3,879,606
2,000,000 Bayerische Vereinsbank 8.75% due 5/17/01 .................. 1,313,972
5,000,000 Nederlande Waterschapshank N.V. 7% due 3/15/02 ..................... 3,164,124
4,000,000 National Australia Bank 7% due 7/23/04 ..................... 2,563,866
3,500,000 Bayerische Vereinsbank 10.25% due 10/28/04 ................ 2,612,339
-----------
Total Australian Eurobonds -- (Cost $18,327,694) 15,825,496
-----------
New Zealand Eurobonds -- 12.1%
NZ$ 5,000,000 Province of Alberta 8% due 10/30/98 .................... 2,559,145
2,500,000 General Electric Capital Corp. 8.75% due 5/21/99 .................. 1,282,823
4,000,000 I.B.R.D. 7% due 9/18/00 ..................... 2,034,112
4,000,000 European Investment Bank 8.5% due 5/30/01 ................... 2,102,471
7,000,000 Federal National Mortgage Association 7.25% due 6/20/02 .................. 3,589,650
-----------
Total New Zealand Eurobonds -- (Cost $14,335,297) 11,568,201
-----------
New Zealand Government Bond -- 1.8%
NZ$ 3,000,000 New Zealand Government Bond 10% due 3/15/02 -- (Cost $2,219,696) 1,703,392
-----------
Total Long-Term Investments -- (Cost $102,067,446 93,157,233
-----------
Cash on Deposit -- 1.2%
A$ 1,797,384 Brown Brothers Harriman & Co., upon demand at 3.44% .......................... 1,092,720
US$ 60,775 Brown Brothers Harriman & Co., upon demand at 4.50% .......................... 60,775
-----------
Total Cash on Deposit -- (Cost $1,141,647) 1,153,495
-----------
Total Portfolio of Investments and Cash on Deposit -- 98.6% (Cost $103,209,093) ....................... 94,310,728
Other Assets less Liabilities -- 1.4% .................................... 1,314,782
-----------
Net Assets -- 100.0% $95,625,510
===========
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
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Kleinwort
Benson
Australian
Income Fund, Inc.
- -------------------
Financial Summary
<TABLE>
<CAPTION>
For the nine months ended July 31, 1998
(Unaudited)
Net Asset
Total Value
Net Assets Per Share
------------- ---------
<S> <C> <C>
Beginning of period, November 1, 1997 ..................... $ 113,639,028 $ 9.51
------------- ---------
Net Investment Income* .................................... 4,967,126 0.42
Net Realized gain (loss) on:
Investment transactions* ................................ 658,774 0.06
Foreign currency transactions** ......................... (3,050,119) (0.26)
Change in unrealized appreciation (depreciation) on
Investments* ............................................ (2,347,996) (0.26)
Foreign currency denominated assets and liabilities** ... (11,510,882) (0.96)
------------- ---------
Net decrease in net assets resulting from operations ...... (11,283,097) (0.95)
------------- ---------
Dividends paid from net investment income ................. (5,379,555) (0.45)
Dividends paid from net realized capital gains ............ (1,350,866) (0.11)
------------- ---------
Net decrease in net assets resulting from distributions ...
to shareholders ......................................... (6,730,421) (0.57)
------------- ---------
Net decrease in net asset value ........................... (18,013,518) (1.51)
------------- ---------
Net assets at end of period, July 31, 1998 ................ $ 95,625,510 $ 8.00
============= =========
</TABLE>
* Net increase in net assets before net foreign currency loss and dividends
and distributions paid to shareholders was $3,277,904, equal to $0.27 per
share.
** Net realized and unrealized foreign currency loss was ($14,561,001), equal
to ($1.22) per share.
The financial statements contained in this report were not audited and,
accordingly, no opinion is expressed on them.
See Notes to Financial Statements.
9
<PAGE>
- -------------------
Kleinwort
Benson
Australian
Income Fund, Inc.
- -------------------
Dividend Reinvestment and Cash Purchase Plan
Foreign Tax Credits
Dividend Reinvestment and Cash Purchase Plan
The Fund offers to shareholders a Dividend Reinvestment Plan which
provides participants with a prompt and simple way to reinvest their income
dividends and capital gain distributions in additional Fund shares. If you
choose to participate in the Plan, your income dividends and capital gain
distributions will automatically be reinvested in Fund shares at the lower of
market price or net asset value, at up to a 5% discount from market price, on
valuation date. The Plan also includes a Cash Purchase option which provides
Reinvestment Plan participants with the opportunity to make additional cash
investments in Fund shares directly through the Plan Agent.
The Plan is entirely voluntary and, subject to the terms and conditions of
the Plan, you may join or withdraw at any time. A brochure with more
information, including the full terms and conditions, and an application is
available from the Plan Agent, Boston EquiServe, telephone (800) 730-6001.
If you wish to participate and your shares are registered in your name,
simply complete and return the application form. If your shares are held in the
name of a brokerage firm, bank or other nominee, your shares may need to be
re-registered in your own name in order for you to participate. Please consult
your broker to determine what needs to be done to arrange for you to join the
Plan.
Foreign Tax Credits
The Fund will generally elect to treat all foreign taxes paid by it as
having been paid proportionately by its shareholders. As a result, the Form
1099-DIV's issued to shareholders by the Fund will likely include an amount of
foreign taxes paid by the Fund on the behalf of its shareholders. Shareholders
can generally use the foreign tax amount to either claim a deduction or a tax
credit on their U.S. Federal tax return.
The Fund issues its 1099-DIV tax forms in January of each year. In
February, the Fund will inform shareholders of the breakdown between foreign
taxes, dividends and distributions paid for the preceding calendar year.
Shareholders whose shares are held in "street name" should contact their broker
for foreign tax credit reporting information.
Shareholder Meeting Results
The Fund's Annual General Meeting of Shareholders was held on April 2,
1998. Issues presented for the approval of shareholders were (1) the election of
four Directors and (2) the ratification of the selection of Price Waterhouse LLP
as Independent Accountants for the Fund for the fiscal year ending October 31,
1998.
The election of Directors and the selection of accountants were approved
by shareholders by large margins. There were 11,954,566 shares eligible to vote
at the meeting and voting results were as follows:
Number of Shares Voted
----------------------
Issue For Against Abstained
- ----- --- ------- ---------
Election of Directors:
Sir Robert Cotton 10,756,629 262,063 --
David M. Felder 10,759,301 259,391 --
James J. Foley 10,767,086 251,606 --
Stephen K. West 10,727,559 291,133 --
Selection of Independent
Accountants 10,784,419 64,398 169,875
Other Directors whose term of office continued after the meeting are
Leonard T. Hinde, The Earl of Limerick, G. William Miller and Nigel S. MacEwan.
10
<PAGE>
Directors and Officers
Sir Robert C. Cotton
Director and Chairman of the Board
Sydney, Australia
David M. Felder
Director and President
London, England
James J. Foley
Director
Belmont, MA
Leonard T. Hinde
Director
Cremorne, NSW, Australia
The Earl of Limerick
Director
London, England
Nigel S. MacEwan
Director
Darien, CT
G. William Miller
Director and Deputy Chairman of the Board
Washington, DC
Stephen K. West
Director
New York, NY
Robert J. Goldstein
Secretary
San Francisco, CA
Jennie W. Klein
Treasurer
San Francisco, CA
Investment Advisor
Kleinwort Benson Investment
Management Americas Inc.
New York, NY
Kleinwort
Benson
Australian
Income Fund, Inc.
Four Embarcadero Center
Suite 3000
San Francisco, CA 94111
(800) 237-4218
2520-SAR-4/98
